Monday, May 14, 2007

Tomorrow morning, the CPI will be released. The market will react. If it reacts poorly (which means down, which is a good thing), it's party time. If it finds the report vigorous and exciting for some reason, that's a bad thing for us. Because, simply stated, today made a lot of sense to me, virtually all my positions went up, and all my charts are positioned for juicy profits tomorrow. But a perverse reaction to the CPI could muck that all up in no time.

I said last week that Massey Energy (MEE) was looking like a good short, given its head and shoulders pattern. One person wrote in that evening's comments section.....

I'd stay away from shorting MEE... One of these Merger Monday's it's name is going to be on the "acquired list" and that's going to suck for anyone short it. Crappy management, but great reserves, and the coal bidness ain't going anywhere soon....

Well, the stock took a big fall today, and based on this pattern, there could be plenty more room to fall.

Indeed, some of the put options on this went up literally thousands of percent. Not bad!

On a more bullish note, another stock I've been mentioning as a beautiful buy is ONT, and it continues to do terrific. Check out the strength of that volume!

Because the market is so complacent right now, many puts are being sold on the cheap. Check out this chain from earlier today for MMM. Just look at the October put. For 63 cents (if you strip out the intrinsic value)......63 cents per share!......you get the right to sell the stock at a fixed price of $95 any time between now and October. Even more interesting is the fact that time premium is just about zilch.....July is the same as June....is the same as October! Incredible.

The Major Market Index ($XMI) does a nice job of showing where this market stands. If - - and I say if - - the market even freaks out a little at the morning's CPI, tomorrow is going to be a fantastic today. Today was really good, only because I was running around buying puts when the Dow was up 50 and everything else was basically stalled. I knew it wouldn't last.

I've got to blast off to a meeting, so I'm just going to throw you raw symbols now, all of which I have either puts on or I am already short. Here we go.....AKAM:

16 comments:

That was MEE talking about that coal company with schit management, thanks for not publicly flaying me on it.

It's done this drop before... don't wait on it... profit and go.

Love the AKAM and CROX (o'schite) calls. Can't argue with the bulls on CROX w. regard to mo-mo, but mein Gott, I've already seen the knock offs by the bunch-load... where's the long term branding strategy here?

It was a strange day overall, which left me with the abiding sense that market participants were merely biding their time till tomorrow's CPI. And let's face it, with earnings season essentially behind us, it is going to be much easier to spook the market.The Market is following a familiar script one finds before pullbacks - NASDAQ weaker than the other indices, higher volatility, less volume on the up moves, manic intraday swings, etc.I had to be heartened by the big move in the VIX, relative to all else - my SPX & QQQQ puts were up markedly, even as the underlyings were posting moderate gains - tells me there's a bunch of people buying puts today ahead of the CPI#. I, like Tim, was noticing that the DOW was going nowhere, and I picked up some puts on the DIA.As I write this, the QQQQ's are down almost another 1/4 percent afterhours. And of note: bearish engulfing candle on the DOW transports (God bless Charles Dow), and most important to me (I've got a boatload of puts on the QQQQ's, which can have an eesny, weensy spread of only a couple of cents)- a Dark Cloud Cover formation on the NASDAQ.

WE are holding on to 1500 SPX and 1885 NDX like a fly on fly paper as the Bull is losing some steam but there is enough juice with this hold and getting short term overbought to once again run us up to 1510 where I personally will be shorting with 20% cash ...look out below if you get "honest" inflation numbers and watch out also as BOND surrogates like ZTR have caved in the last few sessions which usually tip off extra risk coming into the market as rates rise which can kick off sell programs. The A/D line was hideous today for an up 20 DOW and we will pay for it soon. NOK calls and the stock treated us well but the average stock over the last 15 sessions is DOWN so we are in that area where Bear Markets have staryed ..I am only looking for a 3-5% correction but if some things fall into place and the Bears start adding ammo to their case .i.e. recession and high inflation ( which I believe is closer than ever )...we may get whacked.

"The total value of U.S. shares contracted last year, despite the 15.8% rise in the S&P 500, by the most in 22 years as a result of booming M&A activity, giant corporate stock buybacks, muted IPO activity and limited secondary offerings."

Hello Tim. Thank you for the Charts. I think MMM and CROX are good charts for PUT buying today and will get some far out strikes.

Take a look at AZO, I bought PUTS yesterday on AZO. Although the Chrysler buy out news will be good for automakers and auto parts, I think AZO is extended and ready for a small correction from current levels.

Longer term I am still a buyer of US equities. We are far from any significant top. This correction is simply the smart money taking profits and plumbing for new demand. They're building cause for further move higher. My analysis shows 1560 to 1580 on the SnP500 cash to be the next significant corrective top.

Tim Knight founded Prophet.net, considered by Forbes and Barrons to be the #1 technical analysis site (sold in early 2005 to INVESTools, where he is the SVP of Technology now). Tim has been trading actively since 1987 and focuses mostly on option positions. He is a dyed-in-the-wool technician, leaning heavily on marked-up charts for his analysis. The contents of this blog are NOT to be considered investment advice, and you should know Tim may or may not have positions in the securities mentioned here.